China investment offsets tax concerns

Moly Mines (MOL)

As uncertainty reigns in the Australian resources sector about how potential tax changes will affect the profitability of current and future projects, a significant investment by Chinese company Hanlong Mining into Australia’s raw materials sector will temper some concerns about the appetite for domestic mining assets.

The investment by Hanlong has already seen it take a majority 55 per cent stake in metals explorer
Moly Mines
, and Hanlong’s largest shareholder Liu Han said on Friday the company would look to fund and develop other world-class mineral assets such as the Moly Mines Spinifex Ridge Molybdenum project.

Last week the company settled a $US200 million equity and debt funding agreement with Moly Mines and a further $US500 million through a finance loan facility to develop the 20 million tonnes a year Spinifex Ridge project is to be finalised in May.

However, the support has done little to revive Moly’s share price, which has laid relatively dormant over the past six months, trading in a narrow range of 80¢ and $1.20 a share.

At about 84¢ a share Moly is 55 per cent off its 52-week high of $1.88 posted in August, but still well above analyst consensus price target of 49¢.

On a technical level the stock may present some value, fetching more than 10 per cent below its 200-day moving average of 97¢.

While investments from China have come from state-owned enterprises, Hanlong Mining is part of Sichuan Hanlong Group, which over the past two decades has become one of the biggest private companies in China’s Sichuan Province.

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As Hanlong outlined a strategy to invest $3 billion to $5 billion – one of the largest investments by a private Chinese company in Australia – to build a major mining house with interests in steel-related resources. In addition, it said it was examining investing in related infrastructure and pursuing investment opportunities in Australian agriculture, solar and clean energy projects.

Aditya Birla Minerals (ABY)

Copper play
Aditya Birla
took major steps towards turning around its business, returning to the black and posting a full-year profit $61.4 million to March 31, backing up its share price performance and the recovery in commodities.

Aditya return to profit comes after it booked a net loss of $76 million for 2009, a year which involved mine closures and charges relating to provisional pricing agreements with customers. In its most recent result, its revenue improved by 2 per cent to $381.5 million from $374.6 million, helped by favourable movements in the price of copper.

Basic earnings per share were 19.61¢, against a loss of 24.26¢ last year.

In the December quarter of 2008 the downturn in the copper price and market conditions led the company to suspend development work on its Ezperanza South project located near Mount Isa Queensland.

Aditya shares are now 225 per cent higher over the past 12 months, surpassing a 120 per cent recovery in the copper price, but are still 31 per cent below a high of $1.65 posted in October 2009 – its highest level of the past 20 months.

Kangaroos Resources (KRL)

Coal miner
Kangaroo Resources
will finalise supply agreements with offtake partners while continuing to ramp-up production at both its Mamahak and GPK Coal projects the company said on Friday as it reported its March quarter results.

The company made significant inroads in the March quarter, moving from junior explorer to coal producer, with operations commencing at two projects, GPK and Mamahak.

During the quarter it sold the first 30,000 tonnes of thermal coal from GPK, an amount which was lower than KRL was originally targeting from GPK, due to delays caused by the introduction of KRL’s second production project at Mamahak.

However, over the June quarter KRL hopes to expand the resource at Mamahak Coal project.